Build single family home to rent

8 Replies

I’m building some homes in the North Texas area and our original thoughts were to sell them both but I have been entertaining the thoughts of keeping them and rent them out and possibly start a portfolio of homes instead of build and sell, does anyone have any thoughts on this?

Generally, new construction puts you at a high basis for rentals.  Unless you are doing density housing, like an apartment building, it rarely pans out.  There are some that are doing it.

Figure out what you net cash flow will be, both in total dollars and a percentage to your all in price.

@Sam Dragoslavic you're better off selling them and using the proceeds to re-invest in other discounted/below market value SFH's. This is without really seeing the numbers and how much profit you're making from each... if you so desire - you can finish them and then get a loan out for them and turn them into rentals... but I don't think many builders are doing that.

One is unlikely to regroup the cost of new construction and can not retail them because of cheap interior.

The concentrated apts is the only exception.

@Sam Dragoslavic I actually have a good friend that has purchased land and will be building 5 modern/updated townhouses. @Tyler Hodgson could probably give you some feedback on how that has gone so far. 

What's the long term goal for you? For me - it's to have enough properties to cash flow off of and live off passive income. If you purchase land AND then build - you will be in deep that you will need to pay off the investors that likely funded the deal. The only way you'll be able to pay them off is if you sell or if you decide to get some type of commercial loan. The numbers would have to be ran - and there's a lot more to factor in a land purchase, building costs, holding costs, and running what the numbers will look like after all costs are in if you were to get a commercial loan out. It's much more complex than just buying land and building a home. I'm not a huge risk taker - so if I was in your position and don't have experience doing something this large - I wouldn't likely take it, unless the numbers allowed for any large hiccups that could come up.